The Central Board of Direct Taxes has been summoned by the Bombay High Court (HC) to seek clarity on the securities transaction tax that the NSE said it is imposing on the delivery-based trading in derivatives segment. The court has asked the CBDT to clarify on the matter on Thursday.

ANMI, a brokers’ body, had approached the court with a plea to seek clarity on the STT being imposed by the NSE. Brokers say there is no provision in law to tax derivative trades that result in delivery.

“The court agreed that there is ambiguity in the law and wants the CBDT to clarify,” said Rajesh Baheti, National President, ANMI.

ANMI reasons that unless Parliament passes a law for STT levy on contracts in the equity futures and options (F&O) segment that result in delivery, there is no mandate for brokerages to collect it from their clients or for exchanges to levy it on brokers.

The NSE, in its circular dated July 17, had directed its members in the equity derivative segment to collect STT on physical settlement of stock derivatives at the rate of 0.10 per cent with effect from July 26. The NSE in the circular also told the members/brokers that if the CBDT issued any clarification or amendment on taxation of physically-settled F&O contracts, then the exchange would recover such additional tax from the members.

Sources told BusinessLine that the CBDT’s view was that an amendment of the law was required for the department to issue any clarification.

Brokers fear that if the exchange raised a tax claim in the future, they may not be able to collect it from their clients as nobody would come forward to pay dues that were not applicable to them when they traded.

SEBI introduced physical delivery as a new segment this year, and identified 46 stocks that will be compulsorily settled via delivery of shares in this segment. There has been confusion over the rate of STT that should be levied on these transactions as it involves various legs of trade, such as buying and selling in futures, and final settlement via delivery, where the entire amount has to be paid.